What is Seigniorage

The growing use of information and communications technology (ICT) by business—e-business— has a profound impact on the economy. E-business lowers costs and increases the choices available to consumers and firms. These microeconomic changes work their way through the economy and ultimately influence macroeconomic conditions. Overall, e-business benefits the economy in many ways. Nevertheless, not all the effects of e-business on macroeconomic conditions are positive, and some aspects of e-commerce may limit the effectiveness of monetary policy. E-business changes the macroeconomy in several beneficial ways. Some gains are static in nature, arising from the more efficient use of existing resources. For example, increases in productivity increase a nation’s GDP. In addition, by lowering search and transaction costs, e-business unleashes deflationary pressures (Willis, 2004). Other gains are dynamic, altering the path national growth takes. By lowering the cost of transferring and employing knowledge, ICT enables greater R&D and innovation, which is crucial to long-run economic growth.